Tuesday, 25 January 2011

The economy slows down

Output is down. The government blame the big freeze of December which put a stop to many an activity. Undoubtedly there is some truth in this.

But for the Chancellor to blame all of these truly dreadful figures on the bad weather is exaggerating his case somewhat. Its like the the railway bosses blaming the non-running of trains on the wrong type of snow.

The bad weather affected one month, December. This is the month that the nation spends regardless of the weather.

The ONS estimates that weather effects knocked about 0.5% off GDP so, even without the impact, the underlying growth picture is significantly weaker than expected.

These shockingly bad figures raise serious concerns over whether the economy is in a strong enough position to withstand the coming fiscal tightening. The prospect of a double dipped recession is real indeed.

Why? Well,there are other adverse forces in play, not least the impact of the latest VAT hike.

In addition the pressures on consumers from high inflation and weak wages growth, as well as weakness in some of the UK's major export markets, all suggest that growth will remain pretty sluggish throughout the year.

On top of all, as the year progresses the government's austerity measures will bite. Government will be taking money out of the economy again acting as a brake on growth. These latest figures show little sign that the private sector is in a position to take up the slack.

But perhaps the most worrying sign of the perilous road we're travelling are contained in an other set of figures produced recently, that on mortgage lending.

Mortgage lending dropped to its lowest levels for ten years. It was a drop of 5 per cent from the previous year. It now stands at £16.8 billion. This lack of activity in the housing market has a knock on effect on the economy as a whole. Reducing further activity that could contribute to growth.

Indeed, these latest GDP figures show construction fell by 3.3% on the quarter after a near 4% increase the prior quarter. The figures are a stark reminder of the critical role that construction plays in the UK economy.

The Westminster government should reflect on these figures and question it's rush to cut back the public deficit. These deficit-busting austerity measures cause a real concern about the future health and strength of our economy.

There many things in life that are better taken gradually. And this is one of them.